The present invention relates generally to computer implemented methods and apparatuses for exchanging financial products, and more particularly, to a computer implemented method and apparatus for exchanging financial products, such as whole loans on a secondary market.
In a secondary market, mortgages are exchanged between lenders and investors. Loans include consumer loan products that are traditional primary residence mortgage loans to consumers. When a lender has made a loan, they often try to sell the loan to a mortgage banker. Often, lenders bulk loans to investors, such as mortgage bankers (i.e., pass several loans referred to as a “pool” of loans).
The role of the mortgage banker is to buy loan pools from the loan origination organization (e.g., mortgage bank) or lender, and then pool them in such a way to make them attractive to other potential investors.
Large institutional investors, such as Freddie Mac, insurance companies, large hedge funds, bond funds, and pension funds, buy closed mortgage loans in pools.
The pools can be securitized and sold to other investors as mortgage-backed securities, wherein the investor groups several pools of loans together into a larger pool, and uses them collectively as collateral to back securities (i.e., mortgage-backed securities, such as bonds). Typically, these groups of loan pools are valued in the range of $50 million-$1 billion. Because the company that purchases the loan pools and uses them to back securities is personally responsible, there is a great deal of risk involved in these types of transactions. These larger pools can then be offered for sale to buyers on the secondary market. The pools can have different asset classes mixed together making it risky for an investor trying to buy a particular class. For example, non-conforming loans, such as sub-prime mortgages can be mixed with conforming loans in a pool. Traditionally, a pool would be purchased as a whole.
Recently, the large pools can be separated and marketed as smaller pools of mortgages in order for small and mid-sized investment institutions to participate in the market.